Inside $18m collapse of major company (2024)

When a major building company collapsed last year, it left 100 projects in limbo and owed money to a trail of debtors totalling an estimated $18 million.

Liquidators have been investigating whether WA-based Simsai Construction was trading insolvent for over two years, while at least 15 employees are owed wages and superannuation, as well as a large tax debt, according to a report filed with the regulator ASIC.

Then there were the hopeful Australians building homes.

Karen Franke was one customer who signed up with Simsai Construction and has instead been left with a patch of dirt and no house.

After splitting from her partner, Ms Franke was excited to build her own home.

The Perth mum had signed up with home builder Simsai Construction in December 2020.

She had agreed to pay $201,000 for a three-bedroom, two-bathroom house to be built in Hamilton Hill, in the city’s southwest.

But Ms Franke claimed her house project was hit by a spate of delays.

She alleged the homebuilder did not complete any work for almost two years as it became clear her build was going to be “complicated” due to the sloping nature of the block.

“Also the prices had really skyrocketed so they didn’t want to do it under that contract so they made excuses, they ignored me several times, they told me the contract had expired and wasn’t valid anymore,” she said.

“I did see a lawyer and spent $3300 but I knew it wasn’t going to get me anywhere.”

Simsai Construction sent an email in February 2022 outlining the skyrocketing prices in the industry and how it applied to Ms Franke’s build.

“Looking at some recent 3x2’s with smaller rooms and only high ceilings in the living area we have done prices are coming up in the high $200,000s just for construction. With the larger room sizes and possible scullery and extra living I would imagine a base house price of about $350,000. On top of this you will have brick build ups, site access issues, retaining and site works,” the email to Ms Franke read.

“It is just very unfortunate that the building prices have risen so much over the last year.”

Yet, her new house had been due to be complete by 2021.

Ms Franke was then advised in March 2022 that Simsai were in the process of finalising a price increase, as well as other construction concerns.

Desperate to get her build underway, Ms Franke also engaged a company to complete the earthworks in April 2022, despite a $3750 allowance in the contract for the work to be done.

Yet in an email from Simsai Construction later that month, she was told that the existing contract had “expired” – something her lawyers told her was incorrect – and due to the “current market we are not taking these sorts of custom projects at this time”.

The email added they were happy to provide her with copies of plans and surveys if needed should she pursue it with another builder.

$70,000 lost

In May 2022, Ms Franke’s lawyer demanded that Simsai commence construction work by the end of June, but it was futile with nothing happening.

“The disorganisation and tardiness of the company was a shemozzle from the start,” she said.

“I felt completely let down. All this effort put in for all this time and all I have is a flat area of soil that cost quite a bit. The earthworks were about $16,000, which was for bringing in of all the soil and flattening the land.”

The 67-year-old’s lawyer outlined an estimated $25,000 she had spent including on deposits, an engineer’s report, earth moving works and transplanting trees to get the build started and warned Simsai Constructions she would be seeking compensation for her loss if the project didn’t begin.

The failure to get the build off the ground meant she also missed out on the HomeBuilder grant and the WA state building grant, which was worth a total of $45,000.

In total, this all added up to $70,000 worth of losses, Ms Franke said, which made her “terrible” experience even worse. She never saw a cent returned to her.

Company collapses

Simsai Construction went into court ordered liquidation in December last year after a dispute with the Australian Taxation Office over debts nearing $4.5 million.

The Perth-based company was working on approximately 100 houses when the business entered administration in early November.

The company ran brands First Home Buyers Direct, Express Homes WA and Multi Develop 360.

Thomas Birch and Jeremy Nipps from insolvency firm Cor Cordis were appointed as liquidators.

A report filed from liquidator Mr Birch in March showed Simsai Construction had an estimated debt of between $10 million and $18 million, however it was unlikely that creditors would see any money returned.

Employees of the company – which the liquidators have identified 15 so far in their report – were left with outstanding entitlements that added up to $304,000, plus unpaid superannuation of $1.77 million, after the ATO submitted a claim.

Insurance provider QBE had also submitted a preliminary claim of $4.1 million but anticipated the final figure to be high as $12 million once all customer claims had been processed.

The liquidators uncovered estimated assets worth between just $182,000 and $200,000.

‘A pile of dirt’

Ms Franke, who is retired, said she has now been left with a pile of dirt and no idea if she will ever be able to build.

“We have got all the dirt is subsiding now, its just a pile of dirt and some of its collapsed a bit as at the last minute they had to do it on two levels,” she explained.

“The soil now is heavily subsiding and semi burying the trees I have paid a lot of money for and I’m not sure if they will recover.”

The dust is very unhealthy as she is allergic, she added.

She has consulted other builders and has been told it would cost up to $450,000 to build the same home now.

Instead, she is stuck living with her ex-partner in a house that is heavily mortgaged and with interest rates skyrocketing the repayments have become “exorbitant”.

What went wrong

Simsai Constructions had blamed Covid-19 market impacts, increase in material and labour costs, decrease in supply of labour and material and government subsidising home loans, the liquidator’s report noted.

But Mr Birch said while these factors impacted on cashflow, the building company failed due to “poor cashflow management”.

Three issues in particular had contributed to the company going bust including alleged “unreasonable director related transactions”, market conditions leading to increasing labour and material costs and insufficient cashflow to meet liabilities such as superannuation, said the report.

It also revealed that preliminary investigations showed the company was likely insolvent from 31 July 2021 and remained insolvent “at all times” until administrators took over in November last year.

Based on that, insolvent trading claims in the vicinity of $4 million to $5 million may exist, it added, but it appeared “uncommercial” to pursue the directors relating to alleged insolvent trading. the liquidators concluded in their report.

The liquidator’s report also revealed that there were outstanding loans made to the directors worth between $1 million and $2 million and they intended to recover the money if possible.

They had previously indicated directors had been willing to repay outstanding debts, possibly through selling their personal homes.

However, the liquidation was expected to take one to two years to be completed.

No money back

Liquidators told Ms Franke she may have a claim under the insurance policy.

She contacted QBE but was advised in December 2023 that the “underwriters have done extensive search for your property and have advised that the builder – Simsai Construction Group Pty Ltd did not purchase the insurance for your property” and a claim could not be lodged.

She feels there is no protection for consumers when builders go bust.

“What does the public need to do, or the government more aptly, to protect us against building companies who continue to (allegedly) trade while insolvent, causing distress and big losses to innocent consumers and no realisation of an end product – a home?” she added.

sarah.sharples@news.com.au

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